Pensions on Divorce

Pensions may often be of considerable value.  They are always taken into account whenever the Assets of a Marriage or Civil Partnership are calculated.  If the Court becomes involved the Court will always take into account pensions as part of the Courts discretionary exercise carried out under Section 25 of the Matrimonial Causes Act 1973.  During the Court process the following options are available in respect of Pension entitlement on Divorce namely (i) Offsetting, (ii) A Pension Attachment Order, (iii) A Pension Sharing Order. (iv) A Pension Compensation Order.

(i)Offsetting.

Pension values are taken into account whenever the Assets are calculated.  If the Court makes no specific provision with regard to pensions it is nonetheless possible for the Court to compensate for lost or reduced pension entitlements by making compensatory adjustments in respect of the division of Matrimonial Assets other than the pension.  By doing so rights under a pension are left untouched by the value of the pension is taken into account by providing a party with an appropriately enlarged share of the other party’s Assets.  Offsetting may be of use where Pension Assets are not accessible (for example where they are held outside the jurisdiction.  It is only possible to use offsetting when there are sufficient Assets available to compensate for the loss of pension entitlements.  If such a step is not possible it then may be necessary to consider other options as listed.  Offsetting does have the advantage of creating a clean break between the parties due to the fact that there will be no need for the parties to have contact with each other in the future.

(ii) Pension Attachment Orders (Earmarking)

This involves “Earmarking” a pension held by one party in favour of the other.  If the Court makes a Pension Attachment Order this means that once the pension becomes payable, the person responsible for the pension arrangement (normally the Trustee or Managers of the Pension fund) is obliged to pay part of the pension income and/or a lump sum available under the pension arrangement to the other party to the marriage.  This results in the actual payment having a more realistic representation of the actual value of the pension.  However a possible disadvantage is that such an arrangement tends to undermine the policy of the clean break insofar as the parties remain financially tied to each other and either party may apply to the Court for a variation.  It may be difficult for the Court to force the pension holder to continue to make payments to the pension fund or to retire by a specified age and it may also be difficult for the Court to predict the value of the pension and the needs of the parties at the point of which the pension becomes payable.  Because of these disadvantages Pension Sharing Orders may be a preferable way of dealing with pensions.

(iii) Pension Sharing Orders.

These Orders were first introduced in 2000 and are the most commonly made Order at the present time.  Where a Pension Sharing Order is made this enables pension benefits to be split at the time of the Divorce which has the consequence of forming two separate pensions.  The pension allocated to the spouse who is claiming a share of the other spouses pension, may be invested as he or she thinks appropriate.  The Order made will specify the percentage value to be transferred.  An Order may be made in respect of a pension which is already in payment.  A basic state retirement pension cannot be made the subject of a Pension Sharing Order.  The advantages of making a Pension Sharing Order include the fact that a Clean Break Order can be made due to the fact that the pension fund is split at the time of the divorce.  The Order which the Court makes enables the Pension Assets to be kept separate from other Assets on Divorce and it avoids any problems in offsetting Assets fairly so as to compensate for a loss of pension.

(iv) Pension Compensation

The Pensions Act 2008 (which came into force on the 6th April 2011) enables Pension Protection Fund (PPF) compensations to be shared or attached in the same way as a pension can be shared or attached.

Whenever the Court is considering pensions the Courts powers are set out in Section 25 of the Matrimonial Causes Act 1973 and the Court must also have regard to the principles set out in the cases of White v White and Miller v Miller  which require the Court to have regard to any benefits under a pension arrangement which a party to the marriage has or is likely to have and any benefits under a pension arrangement which, by reason of the divorce (or annulment) a party to the marriage will loose the chance of acquiring. The Courts are not required only to take into account benefits which will be available in the foreseeable future.  A pension maybe taken into account as being a “financial resource” which a spouse has or is likely to have in the future.  If retirement is reasonably imminent the Court may decide to adjourn the proceedings. 

 

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